In California, an employee is presumed to be at-will. Labor Code § 2922. Virtually every time you receive an employment offer or sign an employment agreement, the phrase “at will” will feature in 14-point type – all caps – several times in the course of the letter. Agreement to at-will status effectively prevents the formation of a contract between you and the employer, thereby precluding a claim for breach of an actual or “implied” contract by a terminated employee. As the phrase suggests, the employer is free to terminate the employee “at will,” while the employee retains the dubious right of being able to end his employment without notice. Although “at will” is the presumption and is broadly used, there are situations in which the at-will defense may be defeated. They are as follows:
1. Fraudulent Inducement
If an employer solicits a prospective employee and then terminates him or her without giving the prospective employee a good faith opportunity to work, the employer may be liable both for breach of contract, and for fraudulent inducement to enter into the employment relationship. Typically, this situation arises where an employee has been solicited away from a different job and before he or she starts working, or within a short period of time after work commences, the employer changes his mind and fires the new hire. In such case, the employer may be estopped from asserting that the employment was at will. For example, in Sheppard v. Morgan Keegan & Co. (1979) 218 Cal.3d 63, at 67-68, an employer hired a young man to work for him. Prior to the start date, the prospective employee dropped by the work site in jeans and a T-shirt. Seeing this, the employer decided that the employee was not fit for the job and terminated his prospective employment. The employee sued for breach of contract and fraudulent inducement. In response, the employer contended that the employment relationship – prospective or actual – was at-will and therefore he was free to breach his agreement with the employee. The court rejected this defense, finding that the employer was estopped from breaching his promise without first giving the prospective employee a good-faith opportunity to perform. Similarly, in Comeaux v. Brown & Williamson Tobacco (9th Cir. 1990) 915 F.2d 1264, 1270-1271, an employer was held liable after he reneged on an oral agreement after checking the employee’s credit rating. The court held that the employer had no basis to claim the relationship was at-will without first providing the prospective employee, who had relied, to his detriment, on the employer’s promise, an opportunity to perform. Thus, employees who have not yet begun employment, or those who have worked for only a short time may well be able to avoid an “at-will” defense in the event they are terminated.
2. Extended Service History
Conversely, an extensive history can give rise to an implied contract not to terminate without “good cause”. Even where an employee has signed an express at-will agreement, there is an argument that can be made that the employer has modified that at-will agreement and has made an “implied-in-fact promise” not to terminate the employee without “good cause.” In a series of decisions by the California Supreme Court, the test of whether there has been an “implied-in-fact contract” not to terminate without good cause depends on a variety of factors, which must be assessed on a case-by-case basis, as to whether such an agreement is shown by the parties’ acts and conduct “interpreted in the light of the subject matter and the surrounding circumstances.” See Pugh v. See’s Candies, Inc. (1981) 116 Cal.App.3d 311, 329; Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 681; Guz v. Bechtel Nat’l, Inc. (2000) 24 Cal.4th 317. Typically, the circumstances that the fact finder looks for come to light over the course of the parties’ relationship. This means that the implied-in-fact terms may be developed over the course of the employment relationship and need not be fixed by the parties’ understanding at the time of the initial agreement. See Pugh v. See’s Candies, Inc. (1988) 203 Cal.App.3d 743, 751-752. This is extremely important, as virtually all employment agreements contain an at-will provision.
The facts the courts look to in order to determine whether or not there is an implied-in-fact promise not to terminate with good cause include the following:
● The employee’s length of service (extremely important);
● The employer’s personnel policies and practices;
● Actions or statements by the employer constituting assurances of continued employment (e.g., “Doug, you have a job here for as long as you want it”; “We intend to keep you for as long as you want to work here.”)
● Practices in the industry in which the employee is engaged; and
● Whether the employee gave independent consideration for the employer’s promise (e.g., a promise not to work for a competitor, a promise not to disclose confidential information obtained during employment, or a promise to turn over patents and copyrights). See Foley v. Interactive Data Corp., supra, 47 Cal.3d at 680-681.
None of these factors alone necessarily leads to a finding that the employee may be discharged only for good cause. Rather, each case turns on its own facts and this court seeks to enforce the understanding of the parties as it develops over time. Guz v. Bechtel Nat’l, Inc. (2000) 24 Cal.4th 317 at 337.
The kind of evidence used in connection with the factors outlined above include the following:
● Personnel Handbooks and Manuals: Where an employer distributes formal policies and procedures in handbooks, policy and procedure manuals, and employee manuals, an inference arises that the employer intends workers to rely upon the policies set forth in those documents notwithstanding a typical disclosure at the front of the document stating that none of the terms and conditions in the policy and procedure manual are to be considered elements of a contract between the employee and the employer. Guz v. Bechtel Nat’l, Inc. (2000) 24 Cal.4th 317, 344-345.
● Layoff Guidelines: Where an employer has written termination guidelines, a trier of fact may infer an agreement to limit the grounds for termination to those expressed in the guidelines. Foley v. Interactive Data Corp., supra, 47 Cal.3d at 681; Haycock v. Hughes Aircraft Co. (1994) 22 Cal.App.4th 1473, 1489 (written layoff procedures indicated an implied agreement to discharge only for cause, particularly if they afford significant protection to long-term employees).
● Past Practices: A practice of keeping administrative personnel employed except for cause may be considered an indicator of an implied contract not to terminate except for cause. Pugh v. See’s Candies, Inc., supra, 116 Cal.App.3d at 327; Stilwell v. Salvation Army (2008) 167 Cal.App.4th at 382 (evidence of employer’s practice to terminate only for cause relevant to question of implied contract).
● Length of Employment: Length of employment is a highly important consideration in deciding whether an implied agreement not to terminate without cause has been formed. See General Dynamics Corp. v. Superior Ct. (1994) 7 Cal.4th 1164, 1178 (fourteen-year tenure was one of many factors demonstrating an implied contract not to terminate absent good cause). Stilwell v. Salvation Army, supra, 167 Cal.App.4th at 382 (evidence of a “long and distinguished career” supported finding of implied contract not to terminate without good cause). It is important to note, though, that no particular length of service is required. For example, in Foley v. Interactive Data Corp, supra, 47 Cal.3d at 681 (six years and nine months was sufficient time for conduct which was the basis for a finding of implied-in-fact contract not to terminate arbitrarily).
● Consistent Promotion and Salary Increases: Solid performance reviews, routine and regular promotions, salary increases and bonuses are all relevant factors, but do not, without more, imply a contract limiting the employer’s termination right. See Kovatch v. California Cas. Management Co., Inc. (1988) 65 Cal.App.4th 1256, 1276. The rationale here is that a rule granting an implied contract on the basis of successful performance alone would discourage the retention and promotion of good employees. Guz v. Bechtel Nat’l, Inc., supra, 24 Cal.4th at 342. However, consistent promotion and salary increases, combined with the other factors, may well lead to a finding of an implied contract.
● Employer’s Assurances. The employer may indicate, by words or conduct (including personnel policies and practices), offer protection for an employee against termination without good cause: “The issue is whether the employer’s words or conduct on which the employee reasonably relied gave rise to that specific understanding.” Guz v. Bechtel Nat’l, supra, 24 Cal.4th at 342; Foley v. Interactive Data Corp., supra, 47 Cal.3d at 681.
● Quality of Assurances. Courts are much more likely to consider an implied-in-fact contract not to terminate without good cause where there have been express statements by the employer made in combination with long service. For example, plaintiff demonstrated an implied promise not to terminate without cause by introducing evidence that he was employed for 32 years, during which time he worked his way up from dishwasher to vice president; that the employer had given him assurances that his future was “secure”; that he received commendations and promotions throughout his employment with no criticism of his work; and that employer’s acknowledged policy was not to terminate without cause. Pugh v. See’s Candies, Inc., supra, 116 Cal.App.3d. 311, 329.
● Similarly, an employee sufficiently alleged an implied promise not to terminate with good cause by alleging that he was hired as a “career-oriented” employee with an expectation of permanent employment, provided his performance was satisfactory; that he was promised explicitly job security and substantial retirement benefits; that he regularly received outstanding performance reviews, promotions, salary increases and commendations throughout a fourteen-year tenure; and that the company abruptly terminated him without following the termination protocols set forth in its policy and procedure manuals. General Dynamics v. Superior Court, supra, 7 Cal.4th 1164, 1178.
● Plaintiff succeeded in establishing an implied-in-fact contract to terminate only for good cause by introducing evidence that his employer repeatedly told him that “he would have a job for as long as [plaintiff] chose to work for them.” Stilwell v. Salvation Army, supra, 167 Cal.App.4th at 381-382.
On the other hand, vague or uncertain assurances may not give rise to an implied-in-fact agreement not to terminate.
● In a letter from plaintiff’s employer stating, “We look forward to a long, pleasant, and mutually satisfactory relationship with you” was insufficient to establish an implied-in-fact contract. The court held that the statements were mere expressions of hope and/or expectation. Hillsman v. Sutter Comm. Hospitals of Sacramento (1984) 153 Cal.App.3d 743, 750.
● An employee to whom the employer had promised salary increases and annual bonuses “appropriate” to employee’s responsibilities and performances along with assurances that employee would participate in executive meetings, creative activities and administrative matters; and that he would be subject to direction only by high-level executives were “simply too vague and indefinite to be enforceable” and could not support a breach of an implied contract claim for termination without good cause. Rochlis v. Walt Disney Co. (1993) 19 Cal.App.4th 201, 213-214.
● Industry Customs and Practice: In Guz v. Bechtel Nat’l, Inc., supra, 24 Cal.4th at 341, the court considered that the employer, like other companies in its industry, operated by competitive bidding from project to project with a fluctuating workforce. This indicated no guarantee of continued employment, as the business itself was in a state of constant flux and change.
In summary, the analysis of whether an implied-in-fact contract exists, despite an at-will provision in the original employment agreement, turns on a number of factors. Of those, the core, and most important, are: (1) the length of service; (2) statements made to the employee; (3) the provisions of the employer handbook and personnel policies; and (4) the practices of the employer. If you have been fired, carefully catalogue your experiences with an eye to the criteria above. When you consult with counsel, you may be able to show him or her that you have a case for breach of implied contract that he or she might otherwise not be aware of.